Forex is one form of trading where currency exchange occurs. Traders target to earn profit by using currency trading & taking advantage of fluctuation in prices of one currency as compared to some other currency.
Advantages of Trading in Forex Market
The best part of trading in forex market is that it is possible for a person to trade many times of the actual investment made, like trading for $500,000 by investing $5000. It is also important for you to know one important fact about foreign exchange trade which is the risk factor such trading has since trader can easily lose all the investment he or she has. Hence to safeguard yourself it is important to correctly select currency to trade in. The expansion of forex market can be understood from one statistical detail according to which per day trading volume in this market is close to four trillion dollars.
Most Used Terms
In case you want to do forex trading and earn profits then knowing the most used terms is necessary & here in the following section we will go through it.
1. Spot: This is a kind of trading where the transaction completes after 2 days. The features of these spot transactions is that they have short time schedule, these are without any contract, the transactions are only in cash, there is direct exchange & lastly these transactions are without any interest amount required to be paid.
2. Forward: It is a kind of transactions which helps in management of forex trade risks. In these trades transaction takes place on some future date with a rate that is prefixed & trading occurs on such date using the agreed upon rate instead of the current rates.
3. Swap: A kind of forward trading in which all parties do currency exchange & afterwards reverse it in future as agreed.
4. Future: Here the contract time frame which is generally three months, remains fixed. Future transaction also involves an interest amount to be paid as part of the transaction.
Entities Constituting Forex Market
There are different entities which constitute forex market, some of them are commercial companies, NBFCs, hedge funds, firms doing money transfers, various central banks, companies involved in investment management, traders doing retail foreign exchange business & organizations involved in forex fixing.
What Determines Forex Rates?
There are 3 main factors that effect current forex rates, namely, the present political condition, what kind of psychology exists in the market & similar other economic factors.
1. In political condition there are local as well as international events that have their effect on the forex rates. Foreign exchange rates dependent a lot on political stability of any nation in addition to various economic conditions existing in a country and also the neighboring countries.
2. In terms of various economic factors there are several things like trade balance, policies related to fiscal planning, deficits in the budget, plans concerning monetary flows, level of inflation in the country & policies of the government with regard of the economy of the country.
3. The third factor is market psychology and has a major role which gets influenced from flights to quality, anchoring & other indicators such as trade balances and money supplies.
We will close this discussion by saying that correct analysis is important in forex trading to reap the benefits at the right time when the market is performing well. By properly studying foreign exchange market guidelines you will be able to take right decision in time.